Budget Day Message to George Osborne: Keep it simple, stupid Yorkshire Post
Published in the Yorkshire Post Budget Day 2011
In opposition, George Osborne regularly attacked Gordon Brown for making the British tax system more complex. He was right. Under the last government our tax code doubled in size to over 11,000 pages. My edition of the King James Bible contains 1047. St Luke’s Gospel gets the Roman Empire’s tax code into one verse: “there went out a decree from Caesar Augustus that all the world should be taxed.”
Now George Osborne can start to give Britain the simple tax regime which any country deserves.
To help him, he has appointed an Office of Tax Simplification. The head is a Tory ex-Treasury minister who helped to prepare several complicated Budgets: the other members have a background in law, government or accountancy in which they made a good living from tax complexity. George Osborne might have added a regular taxpayer or a representative from a small business who has had to struggle through the tax system, but that’s the way we do things in Britain – ask for advice on reforming the status quo from people who are part of it.
That said, the new Office achieved something remarkable. They produced a single list of all the reliefs, exemptions and special treatments in our current national tax system. They were amazed to discover 1042, and they did not look at council tax or business rates, which would have added several hundred more.
Their list contains some real oddities. “Breakfasts provided to cyclists on designated cycle-to-work days are exempt from income tax and NIC”. A nice gesture to health and the planet? Maybe, but there is also an exemption for workplace parking for fat polluters who drive to work. There are 54 different reliefs attached to the aggregates levy – which raises only about £300 million a year, pocket change to today’s Treasury. Number 468 on the list is totally baffling: “no income tax is due on income of the issue department of the Reserve Bank ofIndia and the State Bank of Pakistan.”
The Office recommended that just 47 special tax regimes from the list should be abolished, and some of these were already defunct.
George Osborne should be much bolder in his Budget. He should apply a slash-and-burn policy to the thicket of reliefs and exemptions which choke up the tax system and snare people and businesses.
There are four overwhelming reasons for this. First, he needs the money. The Treasury estimated the cost of the principal reliefs and exemptions at close to £300 billion in the current year. Of that total, it classed £200 billion as “structural” – built into the relevant tax – and virtually untouchable. That leaves about £100 billion in possible savings – way more than pocket change and a feasible alternative to many forthcoming cuts which will hit family incomes and frontline public services.
The second is transparency. Tax reliefs, exemptions and special regimes are hidden public expenditure. As such they are a permanent temptation to Chancellors who want to make public finances look better than they are, and they escape subsequent scrutiny and analysis. If a Chancellor gives a £100 million subsidy to the widget industry, that is public money. If it is wasted or misappropriated, those responsible can be punished and if it fails to achieve any economic purpose that can be debated and exposed. But if he gives the widget industry a tax concession worth £100 million, no one knows where that ends up. If Britain’s widgetmakers blow all that money on boardroom bonuses or lap dancers no one can do a thing about it.
Thirdly, special tax regimes promote economic inefficiency. The effort and money spent by people and businesses in trying to exploit them is a pure cost to them and to the national economy. Worse still, they encourage people and businesses to make decisions for artificial tax reasons instead of decisions which make good sense. Tax reliefs either give a gratuitous reward to people for doing what they intended to do anyway, or an unmerited reward to people too stupid or selfish to make good decisions without being bribed.
Most important, complexity in any tax system is always unfair. It automatically rewards a minority of people who know how to exploit it, or can afford to pay for the expensive talent to tell them. It helps to make tax a voluntary act for the super-rich or for giant companies. Tax concessions are of no value to the poorest people, who do not pay tax. They confer an advantage on one group of taxpayers, often small and self-selecting, which has to be paid for by everyone else.
If George Osborne wants to be a great reforming Chancellor he should announce his intention of abolishing every single special regime in both national and local taxation in exactly a year’s time, unless special legislation is introduced to preserve it. That would give the country time to debate which ones are essential and which ones represent an artificial privilege for sectional interests.
This exercise would not only help to cure the Budget deficit but bring permanent gains in efficiency and fairness for our tax system.
